Britain’s Royal Mint has partnered with US-based derivatives exchange CME Group to release a blockchain-based digital platform that will reduce costs associated with trading gold.
"While things have improved regarding gold trading over the centuries, it’s our view that it still remains difficult and relatively expensive as a commodity to invest in... Gold is known in the industry as a negative-return investment," said David Janczewski, director of new business for the Royal Mint.
Expected to launch next year in 2017, Royal Mint will be responsible for issuing “Royal Mint Gold;” the RMG will be traded on a platform founded and operated by CME Group.
The RMG will work similarly to other asset-pegged cryptocurrencies, Royal Mint will acquire gold bars which will be secured in vaults, and then be digitalized into RMGs. The ownership of the created tokens will be recorded on the blockchain, and traders will be able to exchange the RMG with unseen liquidity when handling precious metals. One RMG will represent one gram of gold, worth $38.22 at the time of writing.
Royal Mint will start with issuing $1 billion worth of RMG, with more to come at a later date, depending on demand. RMG’s will be offered to both retail and institutional investment providers; Royal Mint is focusing on firms with the ability to allocate large amounts of resources to RMG rather than individual investors it seems, in the beginning at least.
CME Group will run the platform 24/7 for uninterrupted access, and Royal Mint will offer ownership of the gold each token is pegged to as well as the option to convert to physical gold at zero storage cost, a far cry from the traditional model of management fees and storage charges when it comes to handling precious metals.
"We spent the greater part of this year with the Royal Mint working through the fact they wanted to launch a digital gold product and looking at all the available technologies that were out there. This is not about just applying blockchain just because it is blockchain," said Sandra Ro, executive director of digitization at CME Group. "This is about looking for what the best delivery mechanism is that could also help us to scale at a global level over time."
With gold displaying a poor sign of performance during November, a platform that aims to revolutionize the way gold and even other precious metals may be what is needed to entice investors back into traditional commodities. With everything becoming online and offering greater convenience, it is about time the yellow metal catches up too.